updated 10:00 am EDT, Thu August 24, 2006
AAPL trading at discount?
Wall Street's current perception suggests that Apple shares are trading at a premium value, but analyst firm Piper Jaffray believes the stock is actually trading at a discount. "We believe many investors generally feel that Apple shares have a high relative valuation and, therefore, the Street remains split between those that believe shares deserve to continue to trade at a premium and those that believe shares should trade lower due to declining momentum," wrote Piper Jaffray senior analyst Gene Munster in a research report obtained by MacNN. "Apple is a unique company in that its business stretches into both hardware and software. As such, we believe a comparative valuation group should consist of Apple's competitors in both hardware and software." The analyst believes Apple will continue to outpace the growth of its competitors in the coming years, and that Apple shares should trade at a premium relative multiple based on profits, earnings, and growth (excluding cash).
The analyst firm also believes the recent settlement between Apple and Creative, which resulted in a one-time $100 million payment to Creative to resolve outstanding lawsuits, is a "drop in the bucket" to relieve possible worries about future injunctions or appeals in court. The firm further sees Creative's decision to join Apple's "Made for iPod" program as a subtle admission that the iPod dominates the MP3 player market, ultimately creating more revenue for Creative as the company engages in "coopetition" rather than head-on "competition" with Apple's iPod.